When to Use a Take-Profit Order

By: Christopher Lewis

The reverse of a stop-loss order is the take-profit order, and
Christopher Lewis of Forex.comoffers tips on its best use.

When forex traders place their trades, the majority of them have no idea what
their final destination is as far as price. Because of this, there is a certain
set of situations that dictate whether or not you may want to place a
take-profit order when trading forex.

One of the most common reasons to place a take-profit order is that you
expect the market to put up a fight against your position at a certain area. For
example, you may find that there is a massive resistance
area up ahead on your buy order that will more than likely give you trouble.
When you can clearly identify this, you may want to put in a take-profit
order.

One of the biggest determining factors of whether or not you might place one
of these orders is if you are trading with the overall trend or against it. If
you are trading with the long-term trend, a take-profit order may not be wise as
it will possibly cut profits before the move is over. In fact, when trading with
the trend-the wisest choice is to let the trade run as far as you can. If you
are taking profits at a particular level, you are prohibiting the trade's full
potential.

If
you are trading against the trend, a take-profit order makes perfect sense
as the prevailing trend tends to hold up over time. Because of this, you might
face extra resistance against your position when approaching these areas. It is
a simple matter of the full force and weight of the market working against you.
When trading against the trend, you are better off to take your profits and get
out while ahead as trends tend to last for years in the forex markets, and moves
can suddenly happen in their favor.

When placing a take-profit order, you are limiting the potential returns on
your trade. There is no real way around that, and as such it is something you
need to think about. While they do have their place, they should only be in
specific situations where you are trying to get quick profits and out of the
market as rapidly as possible. When you are trading with the overall move, you
owe it to yourself to allow the trade to develop over the long haul. By keeping
this in the back of your mind, you will find that you should be able to stay on
the right side of the fence when it comes to these orders.